Construction Contracts

This report examines the extent to which contractors used individual sureties to meet bonding requirements on federal contracts and the default rate for such contracts awarded during fiscal year 1991. Bonding is a guarantee of the performance of a contract or other obligation, while a surety refers to a company or person responsible for the obligation in the event of a bond default. GAO discusses the percentage of (1) construction contracts for which individual sureties were used to meet bonding requirements, (2) total defaults by contractors using individual sureties, (3) individual sureties that defaulted on their obligations, and (4) contracts awarded to minority business enterprises for which individual sureties were used to meet bonding requirements.

GAO found that: (1) contractors used individual sureties to meet only a small part of the construction contract bonding requirements in FY 1991; (2) contractors used individual sureties for 100 of the 8,124 federal construction contracts with bonding requirements awarded in 1991, with individual sureties accounting for about $388 million of the total construction contract value of $8.7 billion; (3) of the 1,541 construction contracts with bonding requirements awarded to minority business enterprises in FY 1991, 26 were bonded by individual sureties; (4) in FY 1991, prime contractors defaulted on 9 of the 8,124 contracts, but none of the 9 were bonded by individual sureties; and (5) changes to the Federal Acquisition Regulation in February 1990 to curtail abuse by individual sureties were a step toward strengthening management controls over individual sureties, but many contracts span several years, and it would be premature to say that no problems with individual sureties will emerge.